Friday, January 20, 2017

The parallels between the U.K.’s shocking approval of the Brexit referendum in June and the U.S.’s even more shocking election of Donald Trump as president Tuesday night are overwhelming. Elites (outside of populist right-wing circles) aggressively unified across ideological lines in opposition to both. Supporters of Brexit and Trump were continually maligned by the dominant media narrative (validly or otherwise) as primitive, stupid, racist, xenophobic, and irrational. In each case, journalists who spend all day chatting with one another on Twitter and congregating in exclusive social circles in national capitals — constantly re-affirming their own wisdom in an endless feedback loop — were certain of victory. Afterward, the elites whose entitlement to prevail was crushed devoted their energies to blaming everyone they could find except for themselves, while doubling down on their unbridled contempt for those who defied them, steadfastly refusing to examine what drove their insubordination.The indisputable fact is that prevailing institutions of authority in the West, for decades, have relentlessly and with complete indifference stomped on the economic welfare and social security of hundreds of millions of people. While elite circles gorged themselves on globalism, free trade, Wall Street casino gambling, and endless wars (wars that enriched the perpetrators and sent the poorest and most marginalized to bear all their burdens), they completely ignored the victims of their gluttony, except when those victims piped up a bit too much — when they caused a ruckus — and were then scornfully condemned as troglodytes who were the deserved losers in the glorious, global game of meritocracy.That message was heard loud and clear. The institutions and elite factions that have spent years mocking, maligning, and pillaging large portions of the population — all while compiling their own long record of failure and corruption and destruction — are now shocked that their dictates and decrees go unheeded. But human beings are not going to follow and obey the exact people they most blame for their suffering. They’re going to do exactly the opposite: purposely defy them and try to impose punishment in retaliation. Their instruments for retaliation are Brexit and Trump. Those are their agents, dispatched on a mission of destruction: aimed at a system and culture they regard — not without reason — as rife with corruption and, above all else, contempt for them and their welfare.After the Brexit vote, I wrote an article comprehensively detailing these dynamics, which I won’t repeat here but hope those interested will read. The title conveys the crux: “Brexit Is Only the Latest Proof of the Insularity and Failure of Western Establishment Institutions.” That analysis was inspired by a short, incredibly insightful, and now more relevant than ever post-Brexit Facebook note by the Los Angeles Times’s Vincent Bevins, who wrote that “both Brexit and Trumpism are the very, very wrong answers to legitimate questions that urban elites have refused to ask for 30 years.” Bevins went on: “Since the 1980s the elites in rich countries have overplayed their hand, taking all the gains for themselves and just covering their ears when anyone else talks, and now they are watching in horror as voters revolt.”For those who tried to remove themselves from the self-affirming, vehemently pro-Clinton elite echo chamber of 2016, the warning signs that Brexit screechingly announced were not hard to see. Two shortpassages from a Slate interview I gave in July summarized those grave dangers: that opinion-making elites were so clustered, so incestuous, so far removed from the people who would decide this election — so contemptuous of them — that they were not only incapable of seeing the trends toward Trump but were unwittingly accelerating those trends with their own condescending, self-glorifying behavior.Like most everyone else who saw the polling data and predictive models of the media’s self-proclaimed data experts, I long believed Clinton would win, but the reasons why she very well could lose were not hard to see. The warning lights were flashing in neon for a long time, but they were in seedy places that elites studiously avoid. The few people who purposely went to those places and listened, such as Chris Arnade, saw and heard them loud and clear. The ongoing failure to take heed of this intense but invisible resentment and suffering guarantees that it will fester and strengthen. This was the last paragraph of my July article on the Brexit fallout:

Instead of acknowledging and addressing the fundamental flaws within themselves, [elites] are devoting their energies to demonizing the victims of their corruption, all in order to delegitimize those grievances and thus relieve themselves of responsibility to meaningfully address them. That reaction only serves to bolster, if not vindicate, the animating perceptions that these elite institutions are hopelessly self-interested, toxic, and destructive and thus cannot be reformed but rather must be destroyed. That, in turn, only ensures there will be many more Brexits, and Trumps, in our collective future.

Beyond the Brexit analysis, there are three new points from last night’s results that I want to emphasize, as they are unique to the 2016 U.S. election and, more importantly, illustrate the elite pathologies that led to all of this:

1. Democrats have already begun flailing around trying to blame anyone and everyone they can find — everyone except themselves — for last night’s crushing defeat of their party.

You know the drearily predictable list of their scapegoats: Russia, WikiLeaks, James Comey, Jill Stein, Bernie Bros, The Media, news outlets (including, perhaps especially, The Intercept) that sinned by reporting negatively on Hillary Clinton. Anyone who thinks that what happened last night in places like Ohio, Pennsylvania, Iowa, and Michigan can be blamed on any of that is drowning in self-protective ignorance so deep that it’s impossible to express in words.When a political party is demolished, the principal responsibility belongs to one entity: the party that got crushed. It’s the job of the party and the candidate, and nobody else, to persuade the citizenry to support them and find ways to do that. Last night, the Democrats failed, resoundingly, to do that, and any autopsy or liberal think piece or pro-Clinton pundit commentary that does not start and finish with their own behavior is one that is inherently worthless.Put simply, Democrats knowingly chose to nominate a deeply unpopular, extremely vulnerable, scandal-plagued candidate, who — for very good reason — was widely perceived to be a protector and beneficiary of all the worst components of status quo elite corruption. It’s astonishing that those of us who tried frantically to warn Democrats that nominating Hillary Clinton was a huge and scary gamble — that all empirical evidence showed that she could lose to anyone and Bernie Sanders would be a much stronger candidate, especially in this climate — are now the ones being blamed: by the very same people who insisted on ignoring all that data and nominating her anyway.But that’s just basic blame shifting and self-preservation. Far more significant is what this shows about the mentality of the Democratic Party. Just think about who they nominated: someone who — when she wasn’t dining with Saudi monarchs and being feted in Davos by tyrants who gave million-dollar checks — spent the last several years piggishly running around to Wall Street banks and major corporations cashing in with $250,000 fees for 45-minute secret speeches even though she had already become unimaginably rich with book advances while her husband already made tens of millions playing these same games. She did all that without the slightest apparent concern for how that would feed into all the perceptions and resentments of her and the Democratic Party as corrupt, status quo-protecting, aristocratic tools of the rich and powerful: exactly the worst possible behavior for this post-2008-economic-crisis era of globalism and destroyed industries.It goes without saying that Trump is a sociopathic con artist obsessed with personal enrichment: the opposite of a genuine warrior for the downtrodden. That’s too obvious to debate. But, just as Obama did so powerfully in 2008, he could credibly run as an enemy of the D.C. and Wall Street system that has steamrolled over so many people, while Hillary Clinton is its loyal guardian, its consummate beneficiary.Trump vowed to destroy the system that elites love (for good reason) and the masses hate (for equally good reason), while Clinton vowed to manage it more efficiently. That, as Matt Stoller’s indispensable article in The Atlantic three weeks ago documented, is the conniving choice the Democratic Party made decades ago: to abandon populism and become the party of technocratically proficient, mildly benevolent managers of elite power. Those are the cynical, self-interested seeds they planted, and now the crop has sprouted.Of course there are fundamental differences between Obama’s version of “change” and Trump’s. But at a high level of generality — which is where these messages are often ingested — both were perceived as outside forces on a mission to tear down corrupt elite structures, while Clinton was perceived as devoted to their fortification. That is the choice made by Democrats — largely happy with status quo authorities, believing in their basic goodness — and any honest attempt by Democrats to find the prime author of last night’s debacle will begin with a large mirror.

2. That racism, misogyny, and xenophobia are pervasive in all sectors of America is indisputable from even a casual glance at its history, both distant and recent.

There are reasons why all presidents until 2008 were white and all 45 elected presidents have been men. There can be no doubt that those pathologies played a substantial role in last night’s outcome. But that fact answers very few questions and begs many critical ones.To begin with, one must confront the fact that not only was Barack Obama elected twice, but he is poised to leave office as a highly popular president: now viewed more positively than Reagan. America wasn’t any less racist and xenophobic in 2008 and 2012 than it is now. Even stalwart Democrats fond of casually branding their opponents as bigots are acknowledging that a far more complicated analysis is required to understand last night’s results. As the New York Times’s Nate Cohn put it: “Clinton suffered her biggest losses in the places where Obama was strongest among white voters. It’s not a simple racism story.” Matt Yglesias acknowledged that Obama’s high approval rating is inconsistent with depictions of the U.S. as a country “besotted with racism.”People often talk about “racism/sexism/xenophobia” vs. “economic suffering” as if they are totally distinct dichotomies. Of course there are substantial elements of both in Trump’s voting base, but the two categories are inextricably linked: The more economic suffering people endure, the angrier and more bitter they get, the easier it is to direct their anger to scapegoats. Economic suffering often fuels ugly bigotry. It is true that many Trump voters are relatively well-off and many of the nation’s poorest voted for Clinton, but, as Michael Moore quite presciently warned, those portions of the country that have been most ravaged by free trade orgies and globalism — Pennsylvania, Ohio, Michigan, Iowa — were filled with rage and “see [Trump] as a chance to be the human Molotov cocktail that they’d like to throw into the system to blow it up.” Those are the places that were decisive in Trump’s victory. As the Washington Examiner’s Tim Carney put it:

Low-income rural white voters in Pa. voted for Obama in 2008 and then Trump in 2016, and your explanation is white supremacy? Interesting.

It has long been, and still is, a central American challenge to rid society of these structural inequalities. But one way to ensure those scapegoating dynamics fester rather than erode is to continue to embrace a system that excludes and ignores a large portion of the population. Hillary Clinton was viewed, reasonably, as a stalwart devotee, beloved agent, and prime beneficiary of that system, and thus could not possibly be viewed as a credible actor against it.

3. Over the last six decades, and particularly over the last 15 years of the endless war on terror, both political parties have joined to construct a frightening and unprecedentedly invasive and destructive system of authoritarian power, accompanied by the unbridled authority vested in the executive branch to use it.

As a result, the president of the United States commands a vast nuclear arsenal that can destroy the planet many times over; the deadliest and most expensive military ever developed in human history; legal authorities that allow him to prosecute numerous secret wars at the same time, imprison people with no due process, and target people (including U.S. citizens) for assassination with no oversight; domestic law enforcement agencies that are constructed to appear and act as standing, para-militarized armies; a sprawling penal state that allows imprisonment far more easily than most Western countries; and a system of electronic surveillance purposely designed to be ubiquitous and limitless, including on U.S. soil.Those who have been warning of the grave dangers these powers pose have often been dismissed on the ground that the leaders who control this system are benevolent and well-intentioned. They have thus often resorted to the tactic of urging people to imagine what might happen if a president they regarded as less than benevolent one day gained control of it. That day has arrived. One hopes this will at least provide the impetus to unite across ideological and partisan lines to finally impose meaningful limits on these powers that should never have been vested in the first place. That commitment should start now.For many years, the U.S. — like the U.K. and other Western nations — has embarked on a course that virtually guaranteed a collapse of elite authority and internal implosion. From the invasion of Iraq to the 2008 financial crisis to the all-consuming framework of prisons and endless wars, societal benefits have been directed almost exclusively to the very elite institutions most responsible for failure at the expense of everyone else.It was only a matter of time before instability, backlash, and disruption resulted. Both Brexit and Trump unmistakably signal its arrival. The only question is whether those two cataclysmic events will be the peak of this process, or just the beginning. And that, in turn, will be determined by whether their crucial lessons are learned — truly internalized — or ignored in favor of self-exonerating campaigns to blame everyone else.

Thursday, January 19, 2017

The world and many Americans are aghast that half the American electorate voted for a candidate who never answered a debate question about how he would deal with a problem, who found it necessary to insultingly conflate fat people and hackers, who boasted about being a sexual predator, who called in question the legitimacy of American democracy, who promised to annihilate freedom of the press in the manner that every authoritarian leader has done and continues to do, including his idol, a super thug called Vladimir Putin, who threatened to jail any politician who opposed his will, who bragged about circumventing the spirit of the law by exploiting its letters, who pandered to fundamentalists by rejecting science, who has made an art out of emptying the pockets of anybody stupid enough to follow rules about fair play and honesty, who thought it wise to retweet the support of Neo-Nazis, who had no compunction about accepting dirty capital from third world kleptocrats, who thought it smart business to screw business vendors out of their promised payment, who thinks he can map his strategy of threatening the backers of his failing business ventures with default to the debts of the United States, who threatened to undo the devil's bargain whereby jobs were shipped abroad in return for goods at drastically lower prices than if made at home, and who thinks nuclear weapons should not exist if not deployed to press one's advantage over the competition.

The market did not tank the morning after because it interprets the election result as a protest vote which does not give a House, Senate and Presidency now controlled by the Republican Party a mandate to implement the bad ideas Donald Trump hijacked and cranked to their logical, catastrophic limit. Unlike Great Britain whose lost glory is an indisputable fact, the American half that voted for Trump did not jettison its moral compass because an end-timer mentality was justified by the circumstances. Most Americans do not know who Frank Giustra or Rick Rule are, but at least half voted against the machine personified by Hillary Clinton. They did not vote for Donald Trump; they voted against the status quo represented by the powers behind the Republican and Democratic Parties.

[...]

Nobody is talking about it yet, but if "red" America attempts to impose a nasty version of Christian fundamentalism on America's west coast, it will collide with an invisible fist that is already poised to strike back. The apparent polarization of America is such that it is reasonable to question the sustainability of the union. The geographic polarization is not of an economic nature; it is a deeply philosophical-moral split. In thirties Germany the Nazis rose to prominence by isolating and targeting the Communists within the German population. It was an internal ideological power struggle which the left lost. The ideological distribution in the United States has a profound geographical distribution, punctuated by a rural versus urban divide. Physical separation is a realistic response to any attempt by the Republican political triumvirate to impose a Christian version of Sharia Law on all of America.

In 2011 a phenomenon called Occupy Wall Street flared up and quickly vanished. It was a trial balloon supposedly engineered by the likes of anarchist David Graeber which appealed to the split between the 99% and 1%. Paradoxical as it may sound given everything Trump has indicated he stands for or against, Trump's victory is a rallying cry by the 99% against the 1%. Occupy Wall Street's timing was wrong, which is why it retreated into the woodwork. Protest marches are already erupting in places like Chicago and Oakland. The post 2016 election environment offers conditions much more conducive for a spontaneous flowering of an Occupy Wall Street style protest movement. The trend of jobs marching to China courtesy of globalized trade which enable capital to seek out the lowest cost jurisdictions in terms of labor and emission control costs is coming to an end. As China grows stronger its people become more demanding; the next big trend is the increasing automation of production, not just of the goods produced by blue collar workers, but also the services produced by the white collar knowledge workers. The two most pressing questions are, what will the worker of the future do to "earn" the income needed to consume the output increasingly produced by the machine world, and how will the benefit of the machine world's output be transferred to a retiree generation which has the greatest longevity expectation in the history of mankind? This is in the back of the mind of every American who voted, and certainly those did not or could not. Don't think for a moment that Trump does not understand this.

Donald Trump may have a narcissistic impulse of the sort described by Barbara Oakley in Evil Genes, but he does not (yet) have command of a power hierarchy in the style enjoyed by a Mao Zedong during his reign of terror. It is thus reasonable to predict that he will not succumb to the demands of the Republican wingnuts to which he appealed during his campaign. It was very important that in his election night speech he focused on the idea of making America great again through infrastructure renewal spending. Fiscal stimulus in the form of infrastructure spending is a Keynesian response to an economic downturn for which Obama pushed throughout his two terms, but which was resisted thanks to the Republican control of the House and eventually both the House and the Senate which insisted on "austerity" as a form of biblical punishment for past excess, even though the suffering landed on almost anybody put the perpetrators of the excess during the Bush-Greenspan reign. The sneering joke making the rounds Tuesday night on Democrat network stations such as MSNBC involved the unlikelihood of Trump getting a goahead for a plan that not only cranks up fiscal debt by slashing taxes for the one-percenters, but also cranks it up by building stuff which generations of 99-percenter Americans will benefit from. Good luck getting the Freedom Caucus (aka Tea Party) to agree to that!

The market thus should have dismissed Trump's talk about infrastructure renewal as nothing more than stinky gasses dissipating from a surprisingly large and active orifice. But it did not, and the result was stronger prices for base metals such as copper, nickel and zinc. If we continue with the notion that Trump is not the evil moron implied by his emanations, that he is in fact a sophisticated Face Dancer, or a "performance artist" to use a more contemporary term, one can adopt the view that he will adapt quickly to rational behavior buttressed by the wisdom of experts in matters such as geopolitics. This reduces the risk of security of supply style disruptions, which is a negative for optimism about stronger raw material prices. At the same time as Trump avoids stirring the international pot, he can focus on getting a mandate for infrastructure spending, which he could get from both Republicans and Democrats if both sides accept that the two party system is no longer sustainable.

My suspicion is that Trump understands that he a tightrope walker who needs to garner support by splitting the two party system into three parties: a right wing party that holds all the religious fundamentalists and all the groups Fox News entertains, a centrist party that captures all the moderate Republicans and Democrats, and a leftist party which attracts young people and ideological purists of the Bernie Sanders style. The market responded positively to base metals because it is wagering that Trump's ego is so massive that he will comprehend his role in a historic existential rethink for America that leads him to do the "right thing" with the help of moderates from both parties. On the other hand, even as he boosts total demand for raw material because America starts rebuilding production capacity, there is a risk that although Trump behaves himself on the geopolitical front, aspiring super-powers such as China or Russia will push the envelope so as to force a confrontation that escalates into the curtailment of raw material supply. Metals thus have a double whammy upside potential: either Trump drives demand growth that boosts base metal prices, or supply disruptions boost the prices of metals, or both happen. And none of this requires any of the terrible things Trump has blustered about during the campaign to be turned into policy. The market does not yet share this view, but its eventual adoption makes the current stall in the rally that began at the end of January 2016 an excellent buying opportunity.

Sunday, January 15, 2017

Over the last several weeks the "Trump election effect" in interest rates and the US$ have abated, apparently because traders are beginning to doubt that a significant stimulus will actually be enacted.

No, that's not how it works.

Rather, the "Trump effect" was an overlay of new volume that all sent markets in one direction. Once that new volume is worked through, markets will go back to trending toward the equilibrium.

Doubt over policy may figure in, but more along the lines of "I doubt that the outlook for X has changed so much just because there's a different guy in the White House than we had 2 months ago."